Published: Wednesday, October 23, 2013 at 1:00 a.m.

Last Modified: Monday, October 21, 2013 at 7:26 p.m.

Some of the nation's largest real estate investors have significantly cut back on their pace of home buying in Southwest Florida, amid shrinking inventory and rising prices.

Large hedge funds, which have boosted Southwest Florida's housing market since last fall, have been less aggressive in pursuing distressed properties and Realtor listings alike in recent months, according to a Herald-Tribune review of tax deeds.

The investors' strategy for finding homes also appears to be evolving, with some institutional buyers turning to home builders to augment their portfolios.

Investment giants from Wall Street to California also are beginning to scout the market for townhomes and condos, eschewing the single-family homes that they had targeted exclusively, the newspaper's analysis shows.

But as competition has grown and home prices have ballooned, analysts warn the investors' business model could backfire if the housing market suffers a setback.

Many are also beginning to worry the institutional investors' buying could have lingering effects on an economy still struggling to find stable ground.

“They're looking at returns, and I still think these homes are at discounts, but compared to where they were when this money first entered into the state, the price increases have made this less attractive,” said Sean Snaith, an economist with the University of Central Florida.

“The real question is going to be how smooth will the transition be?”

A retreat Affiliates of Wall Street's Blackstone Group began buying real estate in Southwest Florida in October 2012, under a plan to acquire as many as 25,000 distressed, single-family homes nationwide.

Both hoped to purchase properties and rent them out, at a time when demand for leased residences is flirting with historic highs.

Analysts contend the investors are banking on future appreciation to generate eventual profits.

Their collective shopping spree began with distressed homes at bargain basement prices, but as inventory has become scarce, these groups have purchased some homes well above market rates, according to a Herald-Tribune review.

But several factors have prompted them to retreat.

In all, Blackstone and Colony have bought 226 homes from Parrish to North Port since June 1, spending roughly $41 million.

That pace is down 14 percent from the two companies' pace of the previous eight months, when they spent nearly $84 million to acquire 522 single-family homes.

And the spending has tapered the most in August and September, when the pair bought 67 homes in Sarasota and Manatee counties — half of their typical average monthly pace of the past year, records show.

Other, smaller equity firms, like Fundamental REO and Two Harbors Investment Corp., have almost entirely disappeared from the market.

“These investors have really dropped off,” said Drew Peterson, a foreclosure specialist with Re/Max Alliance in Sarasota. “The prices they can get for rent have to make sense with what the home (acquisition) prices are. These funds are one of the reasons prices have gone up so much, and they sort of priced themselves out of their own model.”

Most analysts attribute the steady exodus to housing prices, which have jumped 25 percent over the year and cut into expected yields.

But still others predict the firms will resume their brisk acquisition pace when new waves of foreclosures clear the backlogs in the courts.

“Prices also have skyrocketed because of what these firms have been willing to pay,” said Jack McCabe, a Florida real estate analyst.

Looking at new homes As housing inventory wanes, corporate investors have turned their attentions from deeply discounted foreclosures to higher-priced short sales, traditional Realtor listings and even purchases from local flippers.

Now, the firms also are touring builder models to find their homes.

Institutional firms have picked up dozens of new homes in the area this summer from builders such as D.R. Horton Inc., KB Home and M/I Homes, of Tampa.

A Colony subsidiary has led that charge, buying 18 houses from builders for its rental division in a vast shift from its previous blueprint.

Fundamental REO, and others, have turned to builders as well, records show.

Industry observers peg the change in philosophy to a slimming gap between the price of new and used houses.

The lack of existing homes for sale also plays a role, with some builders offering bulk discounts to investment buyers.

But the idea that new homes will appreciate over the next three years is risky, said Shannon Moore, broker and owner of Green Lion Realty, which works with smaller real estate investors in North Port.

“They're paying too much, and they won't get those returns back,” Moore said. “Some of them went in thinking they could get a certain amount of rent, and they paid more than they should have. Now they have all of these houses, and I think they're reassessing the situation.”

Many market watchers also question how the Biggert-Waters Flood Insurance Reform Act will impact the investors' strategy.

The new rules will mean higher flood insurance rates for as many as 268,648 Florida property owners.

Some believe that could spawn a new push for residential rentals, and create new opportunities for institutional investors.

Analysts fear, too, that the likes of Blackstone and Colony will ultimately hurt the long-term health of Southwest Florida's housing market.

That is because the well-heeled investors have overpaid in some cases, and forced some buyers to the sidelines.

Blackstone paid $265,000 in May, for instance, for a five-bedroom Sarasota home that is more than 30 years old. That same house changed hands just two months earlier for $185,000 — a 43 percent markup in less than 60 days, according to the Sarasota County Property Appraiser.

Those types of purchases have stirred fears that housing prices will subsequently climb to a level that is unsustainable and unaffordable for many.

“People have been trying to price to what these investors have been doing,” said Joe Adamaitis, president of the Gulf Coast Mortgage Bankers Association. “This is still a cash market, and with so little inventory, it's really beating the heck out of the working family that needs a house.”

In all, the handful of equity funds now control an estimated 1,000 houses in this region, as overall demand for rentals continues to soar.

Residential property managers nationwide predict rents will rise during the next 12 months by an average of about 5 percent — even as rental vacancies are at historic lows.

That trajectory has been similar throughout Southwest Florida. Blackstone's rental arm, Invitation, now has 180 houses in the Sarasota-Bradenton area listed for rent on its website. The monthly rates range from $1,075 to $2,940.

But for now, at least, Blackstone and the others have taken a step back.

“We have seen (institutional investors) slow down a little bit because their rate of return is not what they thought,” said Scott Corbridge, broker of Sarasota Management & Leasing.

“The demand for rentals has dropped off a little bit in the last few months, but we're not seeing a whole lot of change in the rental market from Blackstone yet.”

<p>Some of the nation's largest real estate investors have significantly cut back on their pace of home buying in Southwest Florida, amid shrinking inventory and rising prices.</p><p>Large hedge funds, which have boosted Southwest Florida's housing market since last fall, have been less aggressive in pursuing distressed properties and Realtor listings alike in recent months, according to a Herald-Tribune review of tax deeds.</p><p>The investors' strategy for finding homes also appears to be evolving, with some institutional buyers turning to home builders to augment their portfolios.</p><p>Investment giants from Wall Street to California also are beginning to scout the market for townhomes and condos, eschewing the single-family homes that they had targeted exclusively, the newspaper's analysis shows.</p><p>But as competition has grown and home prices have ballooned, analysts warn the investors' business model could backfire if the housing market suffers a setback.</p><p>Many are also beginning to worry the institutional investors' buying could have lingering effects on an economy still struggling to find stable ground.</p><p>“They're looking at returns, and I still think these homes are at discounts, but compared to where they were when this money first entered into the state, the price increases have made this less attractive,” said Sean Snaith, an economist with the University of Central Florida.</p><p>“The real question is going to be how smooth will the transition be?”</p><p><span style='font-size:1.1em;'>A retreat Affiliates of Wall Street's Blackstone Group began buying real estate in Southwest Florida in October 2012, under a plan to acquire as many as 25,000 distressed, single-family homes nationwide. </p><p>California investment giant Colony Capital joined Blackstone this past spring.</span></b></p><p>Both hoped to purchase properties and rent them out, at a time when demand for leased residences is flirting with historic highs.</p><p>Analysts contend the investors are banking on future appreciation to generate eventual profits.</p><p>Their collective shopping spree began with distressed homes at bargain basement prices, but as inventory has become scarce, these groups have purchased some homes well above market rates, according to a Herald-Tribune review.</p><p>But several factors have prompted them to retreat.</p><p>In all, Blackstone and Colony have bought 226 homes from Parrish to North Port since June 1, spending roughly $41 million.</p><p>That pace is down 14 percent from the two companies' pace of the previous eight months, when they spent nearly $84 million to acquire 522 single-family homes.</p><p>And the spending has tapered the most in August and September, when the pair bought 67 homes in Sarasota and Manatee counties — half of their typical average monthly pace of the past year, records show.</p><p>Other, smaller equity firms, like Fundamental REO and Two Harbors Investment Corp., have almost entirely disappeared from the market.</p><p>“These investors have really dropped off,” said Drew Peterson, a foreclosure specialist with Re/Max Alliance in Sarasota. “The prices they can get for rent have to make sense with what the home (acquisition) prices are. These funds are one of the reasons prices have gone up so much, and they sort of priced themselves out of their own model.”</p><p>Neither Colony nor Blackstone's Invitation Homes representatives returned calls seeking comment.</p><p>Most analysts attribute the steady exodus to housing prices, which have jumped 25 percent over the year and cut into expected yields.</p><p>But still others predict the firms will resume their brisk acquisition pace when new waves of foreclosures clear the backlogs in the courts.</p><p>“Prices also have skyrocketed because of what these firms have been willing to pay,” said Jack McCabe, a Florida real estate analyst.</p><p><span style='font-size:1.1em;'>Looking at new homes As housing inventory wanes, corporate investors have turned their attentions from deeply discounted foreclosures to higher-priced short sales, traditional Realtor listings and even purchases from local flippers. </p><p>Now, the firms also are touring builder models to find their homes.</span></b></p><p>Institutional firms have picked up dozens of new homes in the area this summer from builders such as D.R. Horton Inc., KB Home and M/I Homes, of Tampa. </p><p>A Colony subsidiary has led that charge, buying 18 houses from builders for its rental division in a vast shift from its previous blueprint.</p><p>Fundamental REO, and others, have turned to builders as well, records show.</p><p>Industry observers peg the change in philosophy to a slimming gap between the price of new and used houses.</p><p>The lack of existing homes for sale also plays a role, with some builders offering bulk discounts to investment buyers.</p><p>But the idea that new homes will appreciate over the next three years is risky, said Shannon Moore, broker and owner of Green Lion Realty, which works with smaller real estate investors in North Port.</p><p>“They're paying too much, and they won't get those returns back,” Moore said. “Some of them went in thinking they could get a certain amount of rent, and they paid more than they should have. Now they have all of these houses, and I think they're reassessing the situation.”</p><p>Many market watchers also question how the Biggert-Waters Flood Insurance Reform Act will impact the investors' strategy.</p><p>The new rules will mean higher flood insurance rates for as many as 268,648 Florida property owners.</p><p>Some believe that could spawn a new push for residential rentals, and create new opportunities for institutional investors.</p><p>“This will just facilitate more hedge-fund investment,” area real estate attorney Ann Pellegrino said. </p><p><span style='font-size:1.1em;'>A negative effect?</span></b></p><p>A<CW-18>nalysts fear, too, that the likes of Blackstone and Colony will ultimately hurt the long-term health of Southwest Florida's housing market. </p><p>That is because the well-heeled investors have overpaid in some cases, and forced some buyers to the sidelines.</p><p>Blackstone paid $265,000 in May, for instance, for a five-bedroom Sarasota home that is more than 30 years old. That same house changed hands just two months earlier for $185,000 — a 43 percent markup in less than 60 days, according to the Sarasota County Property Appraiser.</p><p>Those types of purchases have stirred fears that housing prices will subsequently climb to a level that is unsustainable and unaffordable for many.</p><p>“People have been trying to price to what these investors have been doing,” said Joe Adamaitis, president of the Gulf Coast Mortgage Bankers Association. “This is still a cash market, and with so little inventory, it's really beating the heck out of the working family that needs a house.”</p><p>In all, the handful of equity funds now control an estimated 1,000 houses in this region, as overall demand for rentals continues to soar.</p><p>Residential property managers nationwide predict rents will rise during the next 12 months by an average of about 5 percent — even as rental vacancies are at historic lows.</p><p>That trajectory has been similar throughout Southwest Florida. Blackstone's rental arm, Invitation, now has 180 houses in the Sarasota-Bradenton area listed for rent on its website. The monthly rates range from $1,075 to $2,940.</p><p>But for now, at least, Blackstone and the others have taken a step back.</p><p>“We have seen (institutional investors) slow down a little bit because their rate of return is not what they thought,” said Scott Corbridge, broker of Sarasota Management & Leasing. </p><p>“The demand for rentals has dropped off a little bit in the last few months, but we're not seeing a whole lot of change in the rental market from Blackstone yet.”</p>